Catastrophe risk fund mulled to deal with insurance woes

Both multinational firms and Thai companies may face difficulty accessing loans for business expansion as insurers refuse to issue risk coverage after being hit with huge claims from last year’s flood disaster. 

The crisis has also prompted insurance companies to classify risk coverage clearly as sub-limit insurance to ensure that claims from insurers meet reinsurers’ requirements. 

Moreover, customers will have to pay higher premiums, as insurers now consider Thailand a high-catastrophe-risk country. 

Sub-limit insurance, which is a limitation in an insurance policy on the amount of coverage available to cover a specific type of loss, will be implemented by reinsurers. 

The practice is aimed at reducing reinsurers’ risk while continuing to offer fair coverage to customers.

All these factors have prompted the government and its relevant agencies to consider setting up a Natural Catastrophe Fund, which would be headed by the Office of the Insurance Commission.

 Initially, the fund would be set at Bt50 billion. 

As of December 20, total damage claims were Bt262.17 billion from total sum insured of Bt794.63 billion. Of that, industrial losses accounted for Bt228.39 billion (from its sum insured of Bt456.78 billion) and household losses for Bt33.78 billion.

This year, the non-life insurance business is expected to face a difficult time as reinsurers raise the premiums they charge Thai insurers. Previously, the premiums for all-risk insurance in Thailand were the lowest in the region. 

With immediate effect, the reinsurer of Bangkok Insurance (BKI) has demanded a sub-limit of 20 per cent of sum insured, but reinsurers will limit the amount of compensation to Bt50 million. Corporate customers will be requested to pay a deductible of Bt50,000-Bt100,000 for all-risk insurance, according to BKI, a major player in the general insurance industry.

The flood has also changed the mindset of local insurers on underwriting all-risk insurance for corporate customers, as they now consider the locations of business operations, the types of businesses and the raw materials used before signing the deal.

Local insurers said reinsurers would no longer cover flood risk for corporate customers in Thailand because the flood claims surged to Bt300 billion, far above the Bt17 billion total sum insured.

The reinsurers will not cover tsunami risk for Japanese insurers, either. The Japanese government has had to set up an insurance pool to help local insurers.

The Thai government will likely have to do the same. If not, local insurers will need to use a sub-limit to cap the amount of coverage available to clients.

Household customers are more fortunate.

Local insurers still offer flood risk to property insurance because the amount of sum insured is not too much. However, these customers too might see premiums rise by 30 per cent or more for property insurance that covers flood risk, said Wachira Chuatchoo, senior executive vice president of Siam Commercial Samaggi Insurance.